American Home Mortgage Is Just The Tip Of The Iceberg

by NewstraderFX

The problems with American Home Mortage could be just the tip of an enormous iceberg-and the good ship "mortgage" may have just hit it. AHM is the 10th largest provider of mortgages with over $34B in outstanding loans primarily of the "Alt-A" category, a credit rating above the sub-prime level. They may never write another though as margin calls and dried up funding sources could cause the company to sink permanently.

The implications could be much farther reaching then that.

The banks and investment banks that up to now had been the source of funding have now decided to either raise prices or stop funding entirely. Wall Street banks and brokerages have increase margin demands and pulled their lines of credit from AHM and are likely to do the same to other mortgage companies, effectively turning off the flow of capital and liquidity that ha supported the mortgage and housing industries thru the boom. These actions can only cause the cost of loans to rise further and would be especially damaging now, given the high levels of current housing inventory.

And while all this is happening, the nation’s two largest credit-rating agencies added to the unease yesterday. Standard & Poor’s listed 10 collateralized debt obligations, or C.D.O.’s, for a potential downgrade at the same time that Moody’s Investors Service said that it expected more severe losses on Alt-A loans.

What all this points to is obvious: Tight, jittery markets and aversion to risk. Equity indexes and carry trades could be taking a major hit in coming days, while bond yeilds fall.